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Chile: The Best Mining Country In Latin America?

Chile: The Best Mining Country In Latin America?

Posted by José Peralta on March 31, 2014

From a investor perspective, Chile still is a very attractive country to develop mining projects. Actually, it's the best ranked country in all Latin America to those purposes thanks to it public policies and it's geological potential, according  to the recent report elaborated by the Fraser Institute, one of the most famous Canadian research centers. Since 1997, Fraser Institute has been elaborating an annual survey in the mining industry.

However, the historic record of Chile in the survey (it was incorporated to the study in 1998) reveals that the Latin country has been stepping down in the ranking in the three main indexes measured by the Institute: The Policy Perception Index (referring to the overall policy attractiveness of a jurisdiction), Best Practices Mineral Potential Index (based on the geological conditions of each site) and a combination of both known as Investment Attractiveness Index.

The survey is answered by hundreds of CEO’s and executives of the mining industry. The world is divided into jurisdictions. For a jurisdiction to enter the survey at least 10 answers have to correspond to that zone.

The Chilean case. In Policy Perception the survey evaluates policy factors that affect investment decisions. Policy factors examined include uncertainty concerning the administration current regulations, environmental regulations, regulatory duplication, among others.

Over a maximum of 100 points, Chile scored 70.9, a figure that situates the country in the 30th position out of 112 jurisdictions. The position is in the high part of the table, but it reflects a fall of seven places compared to the 2012 ranking and it's worst level at least in 14 years.

Paradoxically, in 2013 Chile obtained more points that in 2012 (where the country scored 67.7 points) but new jurisdictions added this year and the improvement or public policies in other zones caused Chile to keep on falling positions in the ranking. The Latin country was the best ranked jurisdiction in 2001 and was among the top ten zones until 2010.

Taxes and regulations. Alana Wilson, Senior Economist of the Fraser Institute and coordinator of the survey commented on Chile's downturn. “Between 2011and 2013 Chile dropped the most in its most positive ratings for the taxation regime, trade barriers, and uncertainty concerning the administration, interpretation and enforcement of existing regulations”, she said. 

The fact that the country was the top-ranked in 2001 “suggests that Chile’s policy environment was more attractive to mining investment than it is now”, she added.

According to the specialist, due to the broad nature of survey questions they can't explain the reasons why jurisdictions change in the ranking. However, they  picked up some concerns in the open-ended survey comment fields for Chile regarding uncertainty in the courts interpretation of environmental laws and regulatory change in the permitting process that “could explain some of the lower rankings as they could increase uncertainty”.

For Wilson, to improve Chile’s attractiveness to mining investment, “the newly elected government could focus on providing a stable, predictable and transparent policy environment and minimize the risks associated with policy changes”.

Potential and attractiveness. Another index studied is the Best Practices Mineral Potential Index. Here, the executives are asked about the mining potential of a zone assuming that the policies in that jurisdictions are the best possible.

In that Ranking Chile always had a very privileged position: the country was in the top ten seven years in a row starting in 2003. In 2010 it plummeted to the 14th place and this fall accentuated in 2011, reaching position 18. 2012 and 2013 show a recovery as Chile escalated to the 8th and 4th position respectively.

When these two index are combined, a third one is created called Investment Attractiveness Index. This one reflects the executives opinion of how attractive a zone is taking into consideration it's real geological potential and the public policies that country has.

The Chilean case shows a clear downturn, mostly caused by the fall of positions in he Policy Perception Index. Out of a total of 100 points Chile had 76.5 in this Index, a very good figure but far from the 83.5 it scored in 2010. That loss in points is also reflected in the position in the rank: Chile went from being fourth in 2010 to 12th in 2013.

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